Facts of the Case

The petitioner, Saraswati Petrochem Pvt. Ltd., filed its Return of Income for AY 2011–12, which was processed under Section 143(1) of the Income Tax Act, 1961.

After a lapse of more than six years, the Assessing Officer (AO) issued a notice dated 31.03.2018 under Section 148 alleging that income chargeable to tax had escaped assessment.

The petitioner complied and filed a return declaring the same income as originally disclosed. However, the AO initially failed to provide the “reasons to believe” despite repeated requests. Upon eventual receipt, the petitioner filed objections, which were rejected, leading to the filing of the present writ petition.

Issues Involved

  1. Whether reassessment proceedings under Sections 147/148 can be initiated without furnishing complete material relied upon by the AO.
  2. Whether “reason to believe” can be based on borrowed satisfaction and suspicion rather than tangible material.
  3. Whether reassessment can be initiated for a particular assessment year based on transactions relating to a different financial year.
  4. Whether mere increase in source of funds is sufficient to form belief of escaped income.

Petitioner’s Arguments


  • The AO failed to furnish key materials including communications, FIR, and chargesheet forming the basis of “reason to believe.”
  • The reassessment was based on borrowed satisfaction without independent verification by the AO.
  • Transactions relied upon pertained to a different assessment year (AY 2010–11) and not the relevant AY 2011–12.
  • The AO’s reasoning lacked nexus and was based on conjecture (“may be” language).
  • All bank accounts and transactions were duly disclosed in the original return.
  • There was no material proving that amounts received constituted undisclosed income.

Respondent’s Arguments

  • The petitioner received substantial funds through bank transfers linked to suspicious entities.
  • There was an increase in the source of funds compared to the previous assessment year.
  • Information received from investigation authorities suggested routing of undisclosed income via share capital, loans, etc.
  • The AO conducted inquiries and issued notice seeking details, but the petitioner failed to respond.
  • Reassessment was validly initiated in accordance with Sections 147 and 148 of the Act.

Court’s Findings / Order

  • The AO failed to provide relevant material forming the basis of “reason to believe,” violating principles of natural justice.
  • The information relied upon related to a different financial year, making it irrelevant for the impugned assessment year.
  • The AO did not possess tangible material, and the belief was based merely on suspicion.
  • Use of expressions like “may be” indicated absence of certainty and application of mind.
  • Mere increase in source of funds cannot justify reassessment without corroborative evidence.
  • Reassessment proceedings were initiated without due diligence and proper inquiry.

Final Order:

The impugned notice issued under Section 148 was quashed, and the writ petition was allowed.

Important Clarification

  • “Reason to believe” must be based on tangible material, not suspicion or conjecture.
  • The AO must independently apply mind and cannot rely on borrowed satisfaction.
  • Material relied upon must be disclosed to the assessee.
  • Reassessment must strictly relate to the relevant assessment year.

Sections Involved

  • Section 147 – Income escaping assessment
  • Section 148 – Issue of notice for reassessment
  • Section 143(1) – Processing of return

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS17112023CW108022018_174052.pdf

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